Selling Vehicles at Lien Sale

One of the most difficult issues for a selfstorage facility to handle is the disposal and sale of a vehicle when a tenant is in default. Storage of a car, boat, RV or other vehicle—especially outdoor storage—can be a lucrative part of a storage business, but when a tenant fails to pay rent, profits seem less than worthwhile compared to the problems created.

Vehicles are unlike anything else stored at a facility because they have titles, and titles often have liens attached to them. Getting a title into your name to sell an abandoned vehicle is one problem. Getting around the lien on the title is a second. While some states require you to ask tenants to declare liens on stored property or check for liens before a sale, you often do not find them on household goods and furnishings. That does not mean there are no liens on the property —certain types of liens are simply not recorded. With vehicles, there is no way to avoid knowledge of a lien. To further complicate matters, details regarding vehicle sale and disposal may not be addressed in your state’s self-storage statute. So what is a storage operator to do?

State Statutes

Several states have procedures set forth in their self-storage statutes specifically setting out an operator’s rights when it comes to vehicle disposal. They outline how to retitle and sell a motor vehicle stored at a facility when a tenant is in default. The statute may also discuss what happens to prior lien holders. This could be a blessing or a curse.

For example, California has a lengthy, complicated procedure for selling a motor vehicle stored at a self-storage facility. The state’s statute goes so far as to draw a distinction in sale practices between cars and boats. If you are in a state like California, you need to follow all of the time lines and notice requirements of the state’s statute to sell a vehicle legally. If you are able to follow this maze of guidelines properly, you will generally be able to get a title to the vehicle, sell it, and pay off the lien and your sale expenses.

There are other states that have requirements for the sale of vehicles in their self-storage statutes, and some give some hint of law to secure the title or sell without being as difficult as the one mentioned above. For example, the Michigan statute gives some direction of what to do to sell a vehicle in default and handles the title issues. Other states, such as Arizona and New Hampshire, offer some procedures for safely selling vehicles. North Dakota, Oklahoma and Wyoming’s statutes provide for the transfer of title on sale of a vehicle. Virginia grants priority in the first $150 of storage fees if you sell a vehicle. Unfortunately, in other states with self-storage statutes, disposal of a stored vehicle is not even mentioned.

Protect Yourself Against Claims

There are several things an operator must consider to protect himself from a lawsuit over the wrongful sale of a vehicle or having the lienholder sue for wrongful conversion of his liened property. The first consideration is whether the state statute speaks to stored vehicles in default. If not, he must look at whether his lease speaks to the issue of default and if he has provided himself any specific rights to remove vehicles—specifically, the right to tow a vehicle after the default has been declared.

An operator must also determine the approximate value of the vehicle to be disposed/ sold. Several states have junk-vehicle statutes that allow anyone who has an abandoned vehicle with a certain maximum value on their property to have the vehicle retitled as “junk” and dispose of it.

If an operator does not have a self-storage statute that speaks to vehicle disposal, or his lease or statute does not allow him to tow a vehicle, he must look at other laws that might allow him to remove or sell. While many state statutes do not actually deal with statutory lien sales of vehicles, many have separate statutory sections that protect other industries, such as towing companies who charge storage fees or mechanics who make repairs and are not paid. This is the next place an operator should look. I recommend you consult an attorney for assistance —at least on your first attempt to find and apply these statutes.

Often, if you find an applicable statute, it will provide for a specific lien and process for disposal of a vehicle in “storage” with a towing company or auto mechanic. Selfstorage facilities may be able to assert a lien right under these statutes because they are, in fact, storing the vehicle. You should be able to follow the disposal or retitling procedures set forth in towing and storage statutes (sometimes called “livery statutes”) in your state. These may make the most sense to follow because you cannot convey clear title to a purchaser at a lien sale, public sale or auction—you have to be the titled owner or power of attorney to do so.

Next, do not overlook the possibility of contacting the lender who has the security interest in the vehicle. That lender will often pick up the vehicle—although it may not be willing to pay the full storage charges. Still, you are better off to have the vehicle off your property and make space available for a paying tenant than to squabble over a few dollars. You will have avoided the issue of securing the title, extinguishing the lien and removing the vehicle.

Remember, if you sell the vehicle without resolving the first lien, in many states, you will be doing all “the work” for the secured lender. However, the towing and livery statutes in your state may have a “trumping” mechanism over secured lenders for the storage lien. If at all possible, follow that procedure (which, unfortunately, varies widely by state and cannot be discussed in this short article) to obtain a title. This will make your storage lien superior so you can hopefully recoup some of your selling expenses and lost rent.

If you are really sharp on your rights and know the livery or storage statute in your state, you can possibly explain to the secured lender why it may end up taking a second position to your lien if it does not claim the vehicle and pay storage charges. You will be able to get more secured lenders to pay storage fees and remove abandoned vehicles from your property.

A Final Option

While the first and best option for a storage operator may be to use the livery or towing storage statute and its lien-sale procedures, he does have another option: eviction. Selfstorage facilities often spend a great amount of time and money finding liens, pursuing changed titles, notifying lenders and selling vehicles. After all this, he may find:

The secured lender’s lien trumps his lien and he gets no money.

He does not recover enough money to pay all costs.

He is being sued by the owner or secured lender for making some procedural error.

In most states, you can file a forcible entry and detainer action (eviction) for any storage unit or space at your facility. The default clause in your lease must provide that you may exercise “all other remedies available in equity or in law.” This would mean that, if permissible under the eviction statute in your state, you would have the right to commence an eviction action against the tenant.

The logic in considering this option is the time period for an eviction is generally short. The court will grant you restitution of your premises and, normally, for an additional fee, you can have a sheriff or bailiff come out to “enforce your writ.” Enforcing your writ, in most circumstances, means having the court appointed towing company take the vehicle into custody. In other situations, it means the bailiff/sheriff may simply watch you tow the vehicle off the premises. Again, laws and rules for writ enforcement vary almost by jurisdiction, let alone by state.

If you are allowed to have a sheriff tow the vehicle into the court’s impound lot, retitling and disposal becomes the sheriff’s problem, not yours. Better yet, if you are allowed to tow the vehicle elsewhere, you may have an interesting option available to you:

If your state permits execution of personal property, such as a vehicle, to satisfy your judgment, and your state’s exemption in a vehicle is not a large dollar amount, you may consider filing a complaint against your tenant for damages along with or after your eviction action. If the tenant does not answer the complaint, you will be allowed to take a default judgment against him and collect the money due you. You can order the sheriff to execute against this vehicle to satisfy your judgment. He would take the vehicle into possession and sell it. Proceeds from the sale may be distributed to you on the execution of your judgment or, in some states, any prior lien is paid first.

Even if you do not get much or all of your proceeds, think about what you may have accomplished. For the cost of a complaintfiling fee and maybe an execution fee, the sheriff, who has much better resources to accomplish retitling of vehicles, has done all of the title and lien-check work with the Department of Motor Vehicles. If any procedural errors are made by the sheriff, the liability for those errors lies with him, not you. For a smaller sum of money and a shorter time period, you have saved yourself an enormous amount of work, gotten your space back sooner, and done a good job of insulating yourself from certain liabilities. If your jurisdiction has liberal execution procedures, this may be a concept worth pursuing.

In sum, short of never disposing of stored vehicles, your options are:

Have the secured lender take the vehicle off the property.

Revise or enforce your lease provisions to allow you to tow vehicles to a towing yard that can exercise its towing and storage lien rights.

Follow the towing and storage/livery lien laws in your state, having the vehicle retitled under the storage and towing statutes.

Try the eviction and execution route.

The most important thing for a storage operator to understand is he takes on a great deal of risk if his state’s self-storage statute does not speak to the disposal of vehicles. Selling an abandoned or defaulted vehicle requires jumping through many hoops.

Jeffrey Greenberger practices with the law firm of Katz Greenberger & Norton LLP in Cincinnati, which primarily represents owners and operators of commercial real estate, including selfstorage. Mr. Greenberger is licensed to practice in the states of Ohio and Kentucky, and is the legal counsel for the Ohio Self Storage Owners Society and the Kentucky Self Storage Association. He is a regular contributor to Inside Self-Storage magazine and the tradeshows it sponsors. For more information, Mr. Greenberger can be contacted at Katz Greenberger & Norton LLP, 105 E. Fourth St., Suite 400, Cincinnati, OH 45202, or by calling 513.721.5151.